Child Trust Funds

Debate between Chris Ruane and Helen Goodman

Wednesday 13th March 2019 Westminster Hall

[Helen Goodman (Bishop Auckland) (Lab)]

I beg to move,

That this House has considered Child Trust Funds.

It is very nice to see you in the Chair, Sir Christopher. I am pleased to have secured this debate on child trust funds—a landmark Labour policy set up by Gordon Brown in 2005 to give every young person a financial asset.

Child trust funds were closed to new accounts by the coalition Government in 2011. When Gordon Brown launched them in 2005, he said:

“Our aim is a Britain of ambition and aspiration where not just some but all children have the best possible start in life. The Child Trust Fund is designed to ensure every child has assets and wealth and that no child is left out.”

Unfortunately, it seems that lots of children are being left out. Child trust funds provided a tax-free savings account, with Government contributions to children born between 1 September 2002 and 2 January 2011. Under the scheme, the child is allowed to manage the account when they become 16, but can withdraw money only when they reach 18 years of age. The funds will mature on 1 September 2020.

The scheme was designed to provide a financial cushion for young people as they entered adult life, while building their skills and confidence in money management. As I said, child trust funds were closed to new accounts in 2011, but they remain live and continue to gain value through market growth and family contributions. Today, the Chancellor of the Exchequer announced the continuation of their tax-free status. There are now 6 million such accounts, worth an astonishing £9.3 billion in total, but shockingly the Government have lost more than 1 million of the account holders; their accounts are worth £1.5 billion. What a blunder! The Government have failed to run the scheme properly.

[Chris Ruane (Vale of Clwyd) (Lab)]

I congratulate my hon. Friend on securing the debate. Does she share my concern that, when I have tabled written parliamentary questions asking for the number of lost accounts by social class or nation and region, the Minister does not know? He also does not know how much he has allocated in additional resources. Does that not show a lack of political will to identify that, and to get the money to the poorest children in the country?

[Helen Goodman]

Absolutely. I did not know about my hon. Friend’s parliamentary questions, but I find that astonishing. The figures that I will present come from the Share Foundation.

There are now 6 million accounts worth £9.3 billion, but 6% of the accounts held by children in the top 15% of the income distribution have been lost. In total, those have a value of £213 million. Some 14% of accounts in middle-income families—where Her Majesty’s Revenue and Customs cannot link them up with the family—have a value of £540 million. There is no contact information for four in 10 of the children from families on child tax credits—the worst-off, struggling families, in the lowest 15% of the income distribution. The Share Foundation tells me that, on top of that, another 40% have been contacted but have not responded.

There are therefore between 400,000 and 800,000 children with accounts valued at £1,600—a lost value of £710 million, or even £1.4 billion. That is completely disgraceful. Losing £1,000 may not seem like a lot to a Treasury Minister, on a salary of £100,000 a year, but to most families in my constituency it is a fortune that could pay a young person’s rent as a student for several months, or for a course, or for driving lessons.

[Helen Goodman]

The money is in the accounts but the families have not accessed them and do not know about them, so what the Government need to do is link them up. The Chancellor had an opportunity in his spring statement this afternoon, but he failed to take it. The whole purpose of the scheme was redistributive. The wealthiest children were given a Government contribution of £250 at the outset and middle-income children were given £500, but poorer children and children with disabilities got more. They got it in two chunks that totalled an average of £920.

[Chris Ruane]

I thank my hon. Friend for being so generous. Why does she think that she can get that information from the Share Foundation, but I am unable to get the information from the Department?

[Helen Goodman]

I simply think that the Treasury has taken its eye off the ball completely on this matter. It thinks that it can contract the administration out to a small, well-intentioned charity that is doing its best, but it is fundamentally a Government responsibility, and Government Ministers must take their share of the responsibility.

As I was saying, children from wealthy families started off with £250. Children from poor families started off with £920. However, the valuation of the accounts now shows that that position has completely reversed. The accounts of the wealthiest children are now worth, on average, £4,000, but the accounts of the children from the poorest families are worth £1,600. That is partly because wealthy families were able to keep topping them up, which poor families cannot afford to do. Wealthy families have also been managing them more actively.

In essence, the Government have overturned the whole purpose of the scheme. Moreover, as my hon. Friend the Member for Vale of Clwyd (Chris Ruane) said, the Government seem to be hiding the funds from those for whom they are intended. Information is printed in tiny typeface on the letter that goes to 16-year-olds giving them their national insurance number. All it says is: “When you turn 16, take control of your child trust fund. Ask your parents for more information. Go to www.gov.uk/child-trust-funds”. If someone does not know that they have a child trust fund, or what a child trust fund is, they will not notice or follow that. It ought to say: “You have an asset. It is probably £1,000. If you want to get hold of it, you need to do this.” It should be in big red typeface, like the national insurance number itself, on the letter that is sent out.

Furthermore, most young people, once they have clicked through to the Government website, will not be able to access the fund, even if they follow the instructions in the letter that they get with their national insurance number, because the Government website requires them to have a Government gateway user ID—I do not know whether you are familiar with those, Sir Christopher. It means that, as well as their national insurance number, young people need a passport, a P60 or a payslip. Obviously, 16-year-olds are at school; they do not have P60s and payslips. We are particularly concerned about people in low-income families. Many of them do not have passports, which are very expensive. More to the point, young people are not really very financially sophisticated: 62% of 14 to 17-year-olds cannot read a payslip, while only 52% of seven to 17-year-olds say that they have received any financial education in school, at home or in other settings.

The Government contracted out the administration of the scheme to the Share Foundation, a charity that has been administering it for the 45,000 children in care and which has managed to track down 60% of them via local authority records. That is very commendable, but I put it to the Minister that it is completely irresponsible to contract out the administration of a database of 6 million people to a voluntary sector organisation for a fee of £300,000 a year and expect 1.5 million people to be tracked down on a voluntary basis.

HMRC writes to every mother whose child is soon to be 18, stating that entitlement to child benefit is about to end. I suggest that that is the perfect opportunity to signpost them to the child trust fund. Mothers could be told, “Your child benefit is coming to an end, but your child will then be entitled to this money.” I hope that the Minister will take that idea away and implement it with HMRC, which is a department under the Treasury’s responsibility.